I've been catching up this morning on the news and email after a few days away. (I promised the wife no computer time while on vacation)

I ran across this article. We had an interesting discussion on this board a couple of weeks ago about DEN offering incentives for MEX service. I just thought this article presented interesting comments from industry consultants, analysts, and government people.

Putting the "I" in DIA has cost almost $4 million in "incentive" packages since the airport opened seven years ago -- and city officials are dangling another $1 million for any airline willing to fly non-stop daily service to Paris.

Unlike the recent $1.5 million incentive offer for Denver-Mexico City service, which Mexicana Airlines snapped up in less than 24 hours, the $1 million Denver-Paris offer has been on the table for eight months without any takers.

City and state officials boast that DIA is a "world-class asset," but opinions differ on why the airport has to pay airlines to fly non-stop, daily service. Some say it's the economy. Others say it's because the airport was too expensive to build in the first place and is saddled with too much debt.

But paying million-dollar incentives for international, non-stop, daily flight service is clearly unusual.

Told about the $1 million marketing and promotions offer Denver made on March 13 for service to Mexico City -- sweetened by the state with a half-million dollar offer the next day -- Dan Champeau, managing director for airport ratings for credit agency Fitch Ratings, started laughing.

"I think it's a very aggressive and pro-active marketing effort," Champeau said, still struggling to contain his laughter.

"No, I haven't heard of anyone else doing that."

To get a Denver-London non-stop flight, DIA's then-general manager, Jim De Long, in September 1996 offered $600,000 in marketing money to the first airline to inaugurate the flights.

More than a year later, in November 1997, British Airways announced it would start the non-stop flights -- for $800,000 in marketing money. The first flight occurred almost a year after that, in September 1998.

In March 2000, Mayor Wellington Webb announced a $1 million offer for non-stop, daily service to Frankfurt, Germany. Six months later, the Lufthansa German Airlines announced it would start the non-stop service. The flights actually began in March 2001, a year after the initial offer.

The $1 million in marketing money for Frankfurt that came from the airport was sweetened by the city later with another $600,000 to $650,000 in credits for landing fees, according to Amy Bourgeron, DIA's deputy manager of public relations and marketing.

Last July, Webb offered another $1 million for non-stop service to Paris. To date, no airline has accepted the offer.

According to DIA's Bourgeron, it's because the airport isn't considered a "gateway" market like airports on the East and West coasts.

"We're not a gateway, but there's a whole market out here that wants the service, so we're going to give [airlines] money for them to consider us when they are considering route expansions," Bourgeron said.

Bourgeron noted the airport announces a $1 million incentive for a route every year and this year chose Mexico City over other markets such as Asia. The money is available only as reimbursement for marketing and promotional efforts for the route, she said.

Bob Lee, director of the state's office of economic development and international trade, sees the economy as the top reason for incentives. Lee said the state threw $500,000 into the pot for a Denver-Mexico City non-stop daily flight "because the economy has slowed and we have to ensure these flights will be successful."

The state's money, to be used to reimburse Mexicana for marketing and promotions efforts in equal installments over 12 months, was announced on March 14 -- a day after the city announced its $1 million incentive and the same day Mexicana delivered the city a letter of intent to start non-stop daily service next November. Non-stop service four days a week will start May 2.

The state wasn't involved in any previous incentive packages luring international routes to DIA.

But Mike Boyd, an airline industry analyst based in Evergreen, points the finger squarely at DIA as the reason such incentives are necessary.

"They had to offer a subsidy to get anyone in here because of how expensive their airport is. This airport is so expensive because of the $5 billion in debt they have to pay off," Boyd said. "There's nothing wrong with offering incentives, it's just that we have to offer incentives."

DIA's landing fees, which are paid by the airlines, for 2002 are $3.10 per thousand pounds -- fairly high compared to other large airports, according to airport officials and industry experts.

Another figure, the "cost per passenger" number -- made up of landing fees plus other costs such as rent for ticket and concourse space -- is expected to be about $16.30 this year for DIA, Champeau said.

"Large hub airports are typically in the $10-to-$12 range," Champeau said, adding that while DIA is on the high end of the scale now because it's new, other airports are expected to climb into DIA's range as new construction projects get under way.

Champeau and Bourgeron also pointed out that airport costs are typically a small part of the overall cost of operating at an airport. Champeau said airport costs are usually only 3 percent to 6 percent of the overall cost of a route.

Was the city and state's $1.5 million marketing incentive critical to Mexicana's decision to start the non-stop daily service?

"We have been studying [the route], but no determination had been made," said Mexicana spokeswoman Jenny Jenks.

Jenks said the company first learned of the incentive offer through newspaper stories and "we reacted based on the release. If [the offer] is being made, why not? Immediately after [the offer] went out, we sent a letter of intent to the city to bid for it."

DIA's Bourgeron wouldn't speculate on the influence of the $1.5 million offer, although she added the city had been talking to Mexicana about the route for three years.

Lee, with the state economic development office, said he thought the incentive encouraged Mexicana to move quickly.

"In this economy it's critical that we get them to do it now," Lee said. "The sooner we can get them to fly, the sooner we can benefit."

City officials say the Frankfurt and London flights generate between $250 million and $300 million a year in economic activity in the state.

Boyd said Mexicana's decision to start the service would prove profitable and predicted two daily flights will soon follow.

As for whether Mexicana's swift move edged out any competitors, spokespeople for United and Frontier said their airlines weren't interested in offering non-stop service between Denver and Mexico City.

Bourgeron said Alaska Airlines, which will start flying to Denver in April, had asked for information about the Denver-Mexico City market.

An Alaska Airlines spokesman said announcements about both the incentive and Mexicana's acceptance were news to him.

I can't see why they need to justify it and show that its just how things are done, when its the only airport that does this and still doesn't get offers for some of their incentive packages. Above everything else, to me this shows that the the people in charge think that they have much more demand than they really have...trying to be something they're not.

Also, if the announcement from Mexicana came so soon after the offer was announced, it couldn't have played a very important role. Most likely they were on the fence and the offer just tipped them over. A big price to pay for 500-600 seats a week to a neighboring country. The incentive wasn't even that great for British Airways...which provides 2000 to 3000 seats a week to an unserved continent.

I guess what I'm trying to get at, is if the demand and need was really there, service would be started without these incentive packages - business would be done just like it is at every other airport.

Very interesting indeed! Unfortuantely, DEN has backed itself into a corner with these incentive packages. No new international airline is going to want to start DEN service without some sort of compensation package from DEN.

Mexicana didn't announce the non-stop MEX service just because of the incentive. They started it because they knew the demand was there. If you honestly think that BA, LH, and MX started service to DEN JUST because of the incentives, well then you just insulted them.

Why don't we have many international routes from Denver? Michael Boyd stated it clearly, because of Denver's high landing fees. We have gotten inquiries from airlines like Cathy Pacific but decided to back out because of the high operating costs. Therefore the only way for us to get international service is by compensating the high landing fees by offering incentives.

If Denver can't support these international routes, then we wouldn't have Lufthansa, British Airways, and Mexicana.

Mexicana CLEARLY stated that there is demand for non-stop MEX service, and they've been studying it for a long time.

You really should read some of Michael Boyd's articles. He bashes Denver as much as you do, but about the high operating costs and how the airport cost a fortune to construct. At the same time he states that Denver is underserved internationally and can easily support non-stops to NRT, MEX, and CDG.

If you read that article from the Business Journal well, he believes that Mexicana will end up adding a 2nd daily flight.

Not enough demand is NOT the only factor of why carriers don't start international routes. There are many other factors such as high landing fees, not enough facilities, etc.

Another factor of why DEN hasn't gotten many international carriers is because of it's location. It's simple, international airlines look at the East Coast and West Coast. Not inbetween. The only exception is ORD, look at the size of the city and you'll see why there is that exception.

However, the MAIN reason why we don't have much international service and WHY Mexicana hasn't announced non-stop MEX service until now is because of the high landing fees in Denver. There are many articles by Michael Boyd about this issue.

Hopefully Denver will lower it's operating costs in the future and will no longer need to offer incentives to airlines.

Take MSP for example. The only European carrier they have is KLM. Both LH and BA have inquired to start service to MSP but were rejected because NW has a monopoly in MSP. That's why MSP is so underserved.

Take a look at DTW and SEA, both cities are incredibly underserved from Europe. SEA doesn't even have FRA service!

Again the demand for DEN IS there, flyf15. I don't know how much more I can convince you, but it is a fact. Airline analysts even agree that DEN can support some service to Europe and Asia.

"Generosity is giving more than you can, and pride is taking less than you need." - Khalil Gibran

BA- If the market was really there and airlines thought they could make a profit flying to DEN, then service would be started. However, airlines don't see profits in DEN's way, so the service hasn't been started.

BA, you state facts like "BA's DEN service is the 2nd most profitable US route from LGW (IAH is #1)" but where is the source of this information?
Also, one can't use the excuse of high landing fees and high altitude forever. Let's face it, the Airline business is like any other: if they see an opportunity to make a profit, then they will go for it.
How high are these landing fees at Denver?
I ask this because it is more understandable for an airline with a major hub operation at an airport with high landing fees to curtail some operations than it would be for an international carrier who would operate only one flight a day, if that, into Denver from its major hub.
Just a general hunch, but me thinks that before Air France starts up Denver-Paris, it will return to DFW.

BA, you state facts like "BA's DEN service is the 2nd most profitable US route from LGW (IAH is #1)" but where is the source of this information?

There was a study run a while ago about BA's most profitable trans-atlantic routes.

How high are these landing fees at Denver?

Nearly twice as much as SFO's.....

I ask this because it is more understandable for an airline with a major hub operation at an airport with high landing fees to curtail some operations than it would be for an international carrier who would operate only one flight a day, if that, into Denver from its major hub.

You are correct. United's strategy in Denver is very interesting. They use Denver as an "East to West connector" hub. For example, someone living in Philadelphia who wants to go to lets say Albuequerque who flies United would connect in DEN (or ORD, but DEN is more flexible). They would rather have passengers connect in IAD or ORD for the international needs. If UA flies European routes out of DEN, then the loads on the same route from IAD or ORD will start to suffer. Loads from SFO will also start to suffer. This is why United doesn't operate any transatlantic routes from Denver. However yes, it is much easier for the hub carrier to take a grasp in an international route than for a foreign carrier that is completely new to the market since they can't offer connections in DEN (except for LH which codeshares with UA since they are part of the Star Alliance).

Just a general hunch, but me thinks that before Air France starts up Denver-Paris, it will return to DFW.

I think we will be seeing DTW first. I don't know about the return of DFW, maybe.

Regards

"Generosity is giving more than you can, and pride is taking less than you need." - Khalil Gibran

BA- The reason LH and BA operate a FRA/LGW-DEN flight is because there is a market, that is why the services are operated. BA and LH studied the DEN market before jumping in. Maybe the reason other airlines haven't jumped in the DEN market is because after their study, they have decided that DEN is not a big market for them.

As for LH and FRA-SEA, apparently there isn't as big of a market as LH wants, so it isn't operated.

Well, so far Air France, SAS, and VG Airlines are the only airlines that have shown interest in DEN service.

Air France coming to DEN isn't dead. They said they are interested and have invited Denver officials to come to Paris in May to discuss plans for starting the route next year.

Currently Air France is focusing on filling Sabena's void in Africa. They're heavily beefing up there presence in Africa, then they will look into adding new cities in the US such as DTW and DEN (and hopefully SEA).

SAS hasn't dropped plans for Denver either. Before 9/11, they said that they would like to serve all of United Airline's hubs since they are part of Star Alliance. That has been put on hold for now as a result of 9/11, but it's not gone yet. They still would like to serve all of UA's hubs, but it will take longer now.

VG Airlines hasn't dropped plans for Denver either. Plans are still as ripe as they were before. The real question is if they ever get off the ground. If they do, Denver will be added at a later stage. Would this do well is very questionable. If they code-share with UA, then yes it should succeed. If not, then I doubt it.

That's all I can see from Europe within this decade for DEN.

Regards

"Generosity is giving more than you can, and pride is taking less than you need." - Khalil Gibran

So it seems that Mexicana got a great deal. They're getting $1 million for 2 additional weekly frequencies to DEN. They can send the same plane / crew (i.e. no added expense) to DEN for 3 of the weekly frequencies, only having to add crew and equipment for two more weekly frequencies, at least for the first several months.

Seems like DIA got taken a bit, as they're not really gaining that much service, just seeing a couple more flights and a loss of a destination...

When I flew LH's DEN-FRA last summer, the flight was overbooked by more than 50 passengers.

Passengers were randomly selected to be flown on BA's flight to LGW and connected to FRA, or flown on UA to ORD to catch an LH FRA flight from there.

Luckily I wasn't picked.

The flight went out 100% full. Not a single empty seat.

I was planning a trip to Europe for this Spring, but decided not to go. I checked the date March 16, 1 week before and there were only 2 seats left, and those were in Business class. First Class and Economy were completely full.

Ticket was too expensive, and flying to Europe for only a week wouldn't have been worth it, so I canceled it.

Regards

"Generosity is giving more than you can, and pride is taking less than you need." - Khalil Gibran

SAS has canceled plans to expand west. They announced with the cancelation of the start of SFO services that they will concentrate on expanding east, which leaves Boston, Toronto, and Miami as the most logical expansions.

Denver is NOT a huge market. The city itself isnt that big. DEN-CDG has no need, if it did airlines would be flying it. Maybe you flight was overbooked because of a holiday season or something but i bet its not overbooked everyday because if it was then there would be 2X Daily DEN-FRA. I dont see why you think that DEN will get every airline that EVEN looks at DEN. A airline will do a study and determine if they need to serve the city. Apparently AF didnt need to do DEN-CDG, so they might return later and do a study again.VG airlines to DEN? are you kidding me?

25 Usairways85
: what about sas expansion to phl, i doubt sas would fly to phl before bos and mia, but maybe in a year or 2

26 Mah4546
: USairways, PHL has potential. We'll see what happens with SAS, as thier plans can always change. I think it will be late 2003 before they add another

27 Blink182
: LOT767-300 ER- Very well put, I could not agree more with you. However, Airliners has not posted on these forums. BA- As for SAS, they don't even serv

28 BA
: Blink182, You misunderstood me. I said SAS has plans to serve ALL of United's hubs. This includes IAD, ORD, DEN, and SFO. You are right, YYZ-CPH and S

29 DIA77
: BA, Do you remember where you saw the info regarding DEN being the 2nd most profitable route in North America from LGW? If you have a link or source t

30 BA
: DIA77, Sorry, I don't have a direct link to it. I even forgot where I read it from. I think it was from a magazine at the library. As for CPH. Before